Supercuts 2012 Annual Report Download - page 39

Table of Contents
Fixed expense rates. Fixed expense rate increases of approximately 1.0 to 2.0 percent based on anticipated inflation. Fixed
expenses consisted of rent, site operating, and allocated general and administrative corporate overhead.
Allocated corporate overhead. Corporate overhead incurred by the home office is not allocated as the Hair Restoration Centers
reporting unit incurs its own overhead.
Long-term growth. A long-term growth rate of 2.5 percent was applied to terminal cash flow based on anticipated economic
conditions.
Discount rate.
A discount rate of 12.0 percent based on the weighted average cost of capital that equals the rate of return on debt
capital and equity capital weighted in proportion to the capital structure common to the industry.
Structure. A nontaxable structure based on the highest economic value and feasibility of the assumed structure.
The following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair
value of our Hair Restoration Centers reporting unit goodwill balance (the approximate impact of the change in the critical assumptions
assumes all other assumptions and factors remain constant):
As of our fiscal year 2012 annual impairment test, the estimated fair value of the Promenade salon concept exceeded its respective
carrying value by approximately 14.0 percent. As it is reasonably likely that there could be impairment of the Promenade salon concept's
goodwill in future periods along with the sensitivity of the Company's critical assumptions in estimating fair value of this reporting unit, the
Company has provided additional information related to this reporting unit.
A summary of the critical assumptions utilized during the fiscal year 2012 annual impairment test of the Promenade salon concept are
outlined below:
Annual revenue growth. Annual revenue growth is primarily driven by assumed same-store sales rates of approximately
negative 2.0 to positive 6.0 percent. Other considerations include anticipated economic conditions and moderate acquisition growth.
Gross margin. Adjusted for anticipated salon closures, new salon construction and acquisitions estimated future gross margins
were held constant.
Fixed expense rates. Fixed expense rate increases of approximately 1.0 to 2.0 percent based on anticipated inflation. Fixed
expenses consisted of rent, site operating, and allocated general and administrative corporate overhead.
Allocated corporate overhead. Corporate overhead incurred by the home office based on the number of Promenade company-
owned salons as a percent of total company-owned salons.
Long-term growth. A long-term growth rate of 3.0 percent was applied to terminal cash flow based on anticipated economic
conditions.
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Critical Assumptions Increase (Decrease)
Approximate
Decrease in
Fair Value
(In thousands)
Discount Rate
1.0
%
$
12,000
Same
-
Store Sales
(1.0
)
3,000